Credit Suisse Still Sour on BlackBerry, Sees 40% Downside

By Teresa Rivas

Tuesday saw Wells Fargo get more constructive on BlackBerry (BBRY), although news also broke the Ford (F) would be swapping out the firm’s devices for Apple (AAPL) iPhones for its employees.

Today Credit Suisse’s Kulbinder Garcha and team are weighing in, reiterating an Underperform rating. They write that BlackBerry’s Security Summit expounded upon management’s goal to make the company into an end-to-end security firm, and while its history and brand in this area are strong, they are still concerned that BlackBerry won’t be able to build a new services revenues stream to offset the declines in carrier access revenues.

From the note:

Focusing on regulated markets. Management articulated that the new Blackberry would be focused on several long-term drivers in the area of mobile security. First, the company will target highly regulated markets. Second, the end-to-end nature of the company portfolio i.e. from MDM, security, BES and devices is a differentiator versus peers. Third, the simultaneous drivers of BYOD, IOT heightened security environment, provide a solid backdrop for industry growth.

Services shortfall is a gap that is hard to offset. Our concern remains that the current decline in services revenues cannot be offset by the build-up of new revenue streams. Specifically based upon our analysis we show that current services revenues will drop from their current run rate of $2.0bn to $1.2bn next year. In order for Blackberry to hit their guidance of FCF break even and a return to growth for FY16, the company would need to attract around 51mn users on their platform by year end 2016. We believe the challenge will be to grow MDM revenues in a crowded market to offset the revenue loss from legacy services business.

They maintained a $6 price target, nearly 40% downside from the stock’s current levels around $9.70. They write that the best situation for the company is a breakup, and “Assuming shutting down the hardware business by the end of FY15 and winding down the services business by the end of FY16, we arrive at NAV of $3.1bn ($6 per share).”

Today the WSJ interviewed their new COO: Focus is enterprise security in healthcare, finance, energy and government. He's not fraid of the dancing elephants because he feels there's a lot of room out there in the market. If their success is dependant on getting 51mn customers: wow. I just don't see that happening.

$6. ?!
Before this article I wondered maybe $7.49.
I looked at the chart. It's a bit predictable how the stock will go bumpty bumpty bump down if they're not providing evidence of real progress beyond asset sales and promises.

Have to see what they say next.

JULY 30, 2014 1:45 P.M.

Anonymous wrote:

Credit Suisse’s Kulbinder Garcha talks crap.

JULY 30, 2014 1:46 P.M.

Diane Clayton wrote:

I noticed that credit Swiss sold all but about 300,000 shares of Blackberry. They must be loaning them out to help someone cover a short. What do you think?

JULY 30, 2014 1:47 P.M.

@ al wrote:

Did you say that about the PlayBook with your pal Freddy?

JULY 30, 2014 1:50 P.M.

freddysrevng wrote:

What's that? I've been too busy to follow. I got a job mowing lawns! Having cash is great!!

JULY 30, 2014 1:57 P.M.

Gregg wrote:

Credit Suisse as well as CNBC are in Apple's pocket. CS has no credibility with other calls in the past.
CS is lending BBRY shares to shorts.
March 2014 :Credit Suisse will pay $885m in the US to settle allegations that it mis-sold mortgage-backed securities, in an agreement that has plunged the bank into a small fourth-quarter loss.
Blackberry will show future growth while CS = The Biggest Looser.

JULY 30, 2014 2:00 P.M.

Gregg wrote:

Blackberry will rpve CS wrong many times over. CS like Cramer they are always on the wrong side of call.

JULY 30, 2014 2:06 P.M.

gristle wrote:

service revenue drop from 2 billion to 1.2 billion, amazing... why not say 0.9 billion, so that it sounds much more catastrophic.... and c suisse then maybe able to buy some BlackBerry shares at $8.99!

JULY 30, 2014 2:13 P.M.

freddysrevng wrote:

I have heard that Ford is leaving BlackBerry for iPhone, but have been scouring all of the USA technology experts' blog sites and have not seen the story on Germany buying thousands of secure BlackBerrys at $2,000 per device.... or that IBM is partnering with BlackBerry to sell BES 10 and 12 in Europe. Why? Because their MDM solution is crap and Apple doesn't have one....

Where are these stories in the "USA Apple Hype Media Complex"?

If it any wonder to you why BlackBerry is building its smartphone market share clear across the globe with the Z3 "selling out" in multiple countries - look no further than the bogus and deceptive coverage BlackBerry gets here int the USA.

That's alright, though, because when BlackBerry sells 1-2 million more phones than they did last quarter, the Passport launches and BES12 and the Classic launch, later, this year....all the members of the iTard Fanboy Club will be befuddled, as to, what just happened.

JULY 30, 2014 2:29 P.M.

@Garcha wrote:

Garcha should stop analyzing companies and start a restaurant offering tandoori dishes. He will do much better job there. Anyone who listened to this idi*ts advice on Nokia would be kicking himself hard.

JULY 30, 2014 2:31 P.M.

Anonymous wrote:

Is this article a joke??? Please be advised that everyone does not want an I phone. Can they just let Black Berry do there job. Everything is so negative about this company. This article is so immature!!!

If you want to be superior. First learn to trade and invest. And spell. As for BB's services and gear. We want metrics. Stuff that moves or doesn't equals numbers equals money. Now put your thinking hats on boys!

JULY 30, 2014 3:36 P.M.

Anonymous wrote:

Story should be: "Credit Suisse Short BlackBerry and trying desperately to mitigate its big loss."

They're wrong.

JULY 30, 2014 3:38 P.M.

freaktrader wrote:

I am sure Garcha and team have their thinking' hats on... however, pretty sure they (Garcha etal) they are herding... not expecting some may have thinking hats!!

JULY 30, 2014 4:05 P.M.

Re freaktrader wrote:

Re FY15 and FY16. They're not going to make it bro. You can enjoy it otherwise cuz the volatility is rather predictable. But they're not going anywhere as a company unless it's out the door in pieces. Optimism is better than life. Pessimism is worse than reality.

The Realist :-P

JULY 30, 2014 4:05 P.M.

Anonymous wrote:

Anonymous 3:30

Spelling errors happen so get over it. I guess you are perfect in your little world. Yes real superior!!! First learn to trade and invest. And spell.. Is this correct???Lol

JULY 30, 2014 4:06 P.M.

James wrote:

they Have 2.6 billion in cash, 1.3 billion in debt, let's say 3$ in cash...how do they add up that all the rest of the company is only worth 3$ per share?

JULY 30, 2014 4:08 P.M.

Anonymous wrote:

Anonymous 3:30

First learn to trade and invest. And spell. Is this correct???Lol

JULY 30, 2014 4:55 P.M.

@ Anonymous @ 4:08 wrote:

Sorry. Maybe I should've asked. I'm so presumptuous. Do you still have all your fingers? Do you use them? Or are you just innumerate?

JULY 30, 2014 5:01 P.M.

@ Anonymous @ 4:08 wrote:

There are a few ways a person like you can improve their spelling and typing. Did you wash your hands?

JULY 30, 2014 5:06 P.M.

@ Anonymous @ 4:08. wrote:

There are a few ways a person like you can improve their spelling and typing. Did you wash your hands?!

JULY 30, 2014 5:11 P.M.

Andyetagain wrote:

More garbage by someone that can barely operate a calculator. Its why they are relegated to posting useless forecasts. 65% of analyst forecasts end up being wrong. A monkey with a dart board has a better hance of being right. Not sure how many times it needs to be reiterated that the company is not for sale, nor will it be broken up before these brain dead morons get it.

JULY 30, 2014 5:22 P.M.

James wrote:

I suspect CS has a lot more data to crunch than i do. After running my analytics through my Cognos BI engine, I got a forecast of $5.56 price target versus $6. I thought I must have done something wrong so I got my colleague to run the price forecast and he got the same $5.56 price target for BBRY.

Our firm specializes in real-time quotes for traders and brokers. We base our business in providing accurate and timely quotes and some forecasting capabilities, Our forecasts had been within 15% accuracy. If someone can provide a closer price target forecast please kindly forward it and enlighten us.

JULY 30, 2014 5:23 P.M.

@ Andyetagain wrote:

The analysts' importance and contribution isn't necessarily determined by their price targeting. Often their research is spot on. If the guy says Blackberry needs 51 million new clients... I think there's something to that. People in numbers are not exactly lining up squirt. And even if they're not for sale. Ever heard of Nortel? What's the big diff? Hmm.

They can't continue losing money indefinitely. And sooner or later they'll run out of worthwhile stuff to sell or can. Nor will the government make that pig fly... They're as good as bacon. Canadian bacon. We're makin' bacon. It'll raise your testosterone squirt.

JULY 30, 2014 5:38 P.M.

Anonymous wrote:

Nice job. Seriously. Smells like trouble boys. Is Chen still a Wells Fargo board member? He joined 2004-6?!!

JULY 30, 2014 5:42 P.M.

Anonymous wrote:

What a smack down. $6 means all of Chen's stock boosting will be erased. $6 is what it was Dec 2013. Gruesome. He started in November.

JULY 30, 2014 5:51 P.M.

Leaf wrote:

Can someone tell me why Blackberry won't go out of business? Ever.

How do they stop losing so much money?
How do they end up raking in money?

JULY 30, 2014 6:13 P.M.

Todd wrote:

For a company the size of BlackBerry to reverse from 30 years of mainly device sales revenue into a brand new services revenue, it is extremely difficult if not simply unlikely to succeed in any meaningful measure, let alone a turning around of the company to even a shadow of its former size. Given the highly unlikely doubling of BlackBerry's device sales from 9.7 million units to 19.4 million units for the fiscal year, that would only translate into roughly $7.4 bn in gross revenue given the much lower average unit selling price and the profit sharing with Foxconn. This revenue pales in relation to four out of the past five fiscal yearly amounts of $16.62 bn, $20.3 bn, $18.37 bn, $11.01 bn and $7.14 bn (quoted from BlackBerry's financial statements over 5 years) which had contributed to the downfall of the former Research In Motion enterprise. Prohibitive competitive pressures will cause BlackBerry's services revenues to drop from their current run rate of $2.0bn next year ($1.2 bn sounds credible). In summary, even with a doubling of BlackBerry's device sales, BlackBerry will only see a total fiscal 2015 revenue of $8.6 bn ($7.4 bn + $1.2 bn) which is $1.46 bn higher than the $7.14bn reported last fiscal year amounting to $561.95 mn in loss. However optimistic I can be, I do not see a doubling of unit sales in BlackBerry devices. Therefore, I cannot help but lean towards CS's view of BlackBerry's downside albeit BlackBerry's multitude of efforts to turn the tide which is rising sky high against it.

JULY 30, 2014 6:17 P.M.

Truth-Police wrote:

Kulbinder Garcha is a waterboy for the shorts and those who want to malign Blackberry. He is a paid hack, stop posting what that idiot thinks.

JULY 30, 2014 6:19 P.M.

Truth about Garcha wrote:

He is a chootiya, gaandu, kameens, mochi who takes money to malign.

JULY 30, 2014 6:21 P.M.

NAV .. eh? wrote:

Garcha values BBRY at NAV, what? No value for its world class technology?
Garcha, this is a $100 stock.

Garcha, if you are your father's son, will you quit finance job if BBRY goes to $20

Comparing BlackBerry's cyber security to a lock, and Apple / IBM being the mansion that uses this secure lock. Can someone tell me what's the proportion in value of a lock versus that of the entire mansion?

P.S. I just purchased a stainless steel highly secure padlock for $1.99 from Dollarama for my bicycle.

JULY 30, 2014 6:58 P.M.

Hear Here Nurds! ••••••• Gather here nerds!! wrote:

You like Blackberry. The company. The stock. The products. The services. The executives. The team. WHOOPEE!

Show us your numbers!!!
Show us they've got a hope in hell over any time line. And with what?
PRODUCE.
SPELL IT OUT!
LET'S SEE IT!

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.